THE PR. COMMISSIONER OF INCOME -TAX vs. M/S KAWASAKI MICRO ELECTRONICS INC

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF DECEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.341 OF 2016 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX

INTERNATIONAL TAXATION

7TH FLOOR, BMTC BUILDING

80 FEET ROAD, KORMANGALA

BANGALORE-560095. 2. THE INCOME-TAX OFFICER

INTERNATIONAL TAXATION

WARD-1(2), 4TH FLOOR

BMTC BUILDING, 80 FEET ROAD

KORMANGALA, BANGALORE-560095. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. KAWASAKI MICRO ELECTRONICS INC. 17TH FLOOR, CONCORDE BLOCK UB CITY, VITTAL MALLYA ROAD BANGALORE-560001 PAN: AACCK 7495E. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.06.2015 PASSED IN ITA

2 NO.1221/BANG/2014 FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO.1221/BANG/2014 DATED 29-06-2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(2), BENGALURU. (III) TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT OT GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 11.01.2017 on the following substantial question of law: Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that assessee is entitled for depreciation claimed under

3 section 32 of the Act on an capitalized expenditure on imported software which was purchased by paying Rs.4.05 Crores without deducting TDS as required under section 195 of the Act without appreciating that section 40 starts with a non-obstante clause overruling the section 30 to 38 of the Act and therefore the claim of depreciation on the capitalized assets is also subject to disallowance under section 40(a)(i) of the Act? 2. We have heard the learned counsel for the parties at length. Learned counsel for the revenue submitted that assessee has imported software and paid Rs.4.05 Crores without deducting tax at source under Section 195 of the Act. It is further submitted that assessee has capitalized the imported software and claimed depreciation. The Assessing Officer disallowed the depreciation invoking Section 40(a)(i) of the Act. However, the Commissioner of Income Tax (Appeals) and the tribunal have deleted the disallowance. It is

4 submitted that consequences of failure to deduct tax at source either on expenditure under Section 32 or Section 37 result in disallowance under Section 40(a)(i) of the Act. It is also submitted that depreciation is a deduction of expenditure for the period of the asset acquired at the prescribed rate of the percentage. Hence, the depreciation would par take the character of deduction as referred to Section 40 of the Act. It is also argued that Section 32 of the Act considers the depreciation as deduction and if the finding of the tribunal is accepted, the same would amount to defeat the purpose and object of enacting Section 40(a)(i) of the Act. It is also submitted that disallowance contemplated under Section 40(a)(i) of the Act would be applicable even for denying depreciation under Section 32 of the Act. In support of aforesaid submissions, reliance has been placed on decisions in MYSORE MINERALS LTD. VS. COMMISSIONER OF INCOME- TAX, (1999) 106 TAXMAN 166 (SC) and 'SHRI.

5 CHAUDHARY TRANSPORT COMPANY VS ITO', (2020) 81 TAXMANN.COM 47 (SC). 3. Learned counsel for the assessee submitted that depreciation is not an outgoing expenditure and therefore, provisions of Section 40(a)(ia) of the Act are not attracted. It has been further held that there is no requirement of law permitting deduction of tax out of the expenditure which has been capitalized and no amount was claimed as revenue expenditure, therefore, no disallowance under Section 40(a)(i) of the Act could be made. It is also urged that depreciation is a statutory deduction available to the assessee on the asset which is wholly or partly owned by the assessee and used for the purpose of business or profession. It is further submitted that depreciation is just an allowance and not an expenditure loss or trading liability. It is further submitted that in view of the concurrent findings recorded in favour of the assessee the substantial question of law be answered in favour of the assessee.

6 In support of aforesaid submission reliance has been placed on decisions in 'COMMISSION OF INCOME-TAX VS. MARK AUTO INDUSTRIES LTD.', (2013) 40 TAXMANN.COM 482 and 'NECTAR BEVERAGES (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME- TAX', (2009) 182 TAXMAN 319. 4. We have considered the rival submissions made on both the sides and have perused the record. The tribunal has not taken into account the decision rendered by M/S WIPRO LTD. VS. DCIT, 383 ITR 179 (KAR) and without assigning any reasons has placed reliance on decision of the coordinate bench. Therefore, in peculiar facts of the case , the impugned order passed by the tribunal is quashed and the matter is remitted to tribunal for decision afresh and in accordance with law in the light of rival contentions made by the parties. Therefore, it is not necessary for us to answer the substantial question of law.

7 Accordingly, the appeal is disposed of Sd/- JUDGE Sd/- JUDGE ss